Can the west still run the world?

A historian of the future writing about the decline of the West should include a few lines on the events of October 2010. The EU gave up some privileges at the IMF, but it's not clear that the rising powers will now play by the West's rules.

Senior Policy Fellow

Fifty years into the future, a historian may sit down to write the ?Official History of Western Decline?. She will probably include a few lines on the events of October 2010.

Last month, at a meeting of the Group of Twenty (G-20), European finance ministers agreed to give up some voting rights and seats on the board of the International Monetary Fund. The beneficiaries will be the booming Asian economies, notably China and India.

On paper, the European concessions look small. EU states will still command over 25% of voting rights at the IMF. The Chinese and Indians will have around 10% combined.

Yet the deal is politically important ? not least because it was hammered out at the G-20.

The emergence of the G-20 as the main mechanism for global economic decision-making has been a striking feature of the financial crisis. The reason for its prominence is obvious. The G-20 format allows the rising non-Western powers to deal with the US and EU as equals, reflecting the evolving balance of economic power in the post-crisis world.

Whereas EU members held half the seats in the G-8, they account for just a quarter of the G-20. Although the US remains the single most powerful force in G-20 negotiations, China often plays a decisive role in the discussions. India is increasingly assertive too.

The G-20?s rise and the EU?s concessions on the IMF are symptoms of a gradual transfer of authority from Europe towards rising powers in multilateral institutions. This year also saw an agreement to give more influence at the World Bank to non-Western states.

After the Cold War, European powers used their influence in multilateral organizations from the IMF to the United Nations to reinforce their role on the world stage. Now they are adopting an alternative strategy of letting other nations take on greater responsibility.

European officials argue that, if the rising powers feel they have a greater stake in the international system, they will ?play by the West?s rules? or even ?become more like us?.

The US has encouraged ? and sometimes almost bullied – its European allies to pursue this strategy. The Bush administration began the campaign for a reallocation of voting rights at the IMF, and the Obama administration firmly increased the pressure last year.

Although European diplomats accept that change is necessary, some complain that the Americans are not prepared to give up their own influence in international organizations. Under IMF rules, for example, the US has enough votes to veto proposals it dislikes.

These differences have been exacerbated by diverging views on how to avoid a return to recession. EU members have talked about austerity. The US ? like most of the big Asian economies ? is still more interested in stimulus packages. The old West looks confused.

In spite of these transatlantic tensions, the biggest question is whether policy-makers in Beijing, Brasilia and Delhi will play by the West?s rules. It?s not clear that they will.

A recent survey of Chinese analyses of the G-20, published by the European Council on Foreign Relations, found deep divisions over whether to trust the Western approach.

One sceptical specialist, Xu Minqi, argued that the G-20 is ?an empty shell? that does nothing to challenge ?the US domination of the world? via the IMF and the World Bank.

Prior to this month?s finance ministers? meeting, fears of a global currency war fueled a burst of aggressive rhetoric from Western and non-Western policy-makers. Indian officials told the Financial Times that the G-20 could be weakened by a ?clash of interests and a clash of perceptions.? ?The G-20 is in serious difficulties,? one concluded.

Conversely, European and American officials have complained that many non-Western governments have failed to implement the commitments made at previous summits.

Although the G-20 negotiators managed to paper over these differences this time ? and will probably do so again when the group?s leaders meet in Seoul in November ? it?s clear that the future of multilateral cooperation is not secure. Although the rising powers have gained greater leverage in international institutions, they are not fully satisfied yet.

Some argue that Western powers still behave as if they are in charge of international institutions. Others believe that the creation of the G-20 is a distraction from bigger, harder reforms like reshaping the UN Security Council – and that the relatively small and gradual changes to the governance of the IMF, World Bank are meaningless gestures.

?What we have is a marginal shift in the structure of influence with fundamental change having to wait,? complained a columnist for India?s The Hindu after the IMF vote deal.

Not everyone in Delhi and Beijing is so sceptical. But Western powers may need to offer more radical reforms to the international system if others are to take them seriously.

President Nicolas Sarkozy of France, who will chair the G-20 next year, has promised to push for a deeper overhaul of both the international financial institutions and the UN.

Many commentators ? inside and outside France ? doubt that President Sarkozy can deliver such grand reforms. But the alternative is to risk growing tensions across the international system. Both the EU and the US would lose more influence as a result.

The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of its individual authors.

Author

Senior Policy Fellow

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